PennantPark Investment Corporation: Seeking Piotroski

Investment thesis

The Piotroski F-score is a proven quantitative variable to measure the performance of a company and can help in seeking out candidate stocks for outperforming the market. Over the last period, PennantPark Investment Corporation (NASDAQ:PNNT) has scored relatively high. Seen purely from an accounting/quantitative point of view, it is a strong stock, and it is likely to outperform the market. When incorporating the Fed's decision to increase interest rates on the other hand, its future earnings are under pressure.

Piotroski score

There are many ratios and fundamentals which are of use to value investors. However, an accounting professor from Stanford University, Joseph Piotroski, came up with a metric which is easy to implement and easy to understand. It’s called the Piotroski F-score. The test was used on historical data and showed that above-average market gains can be achieved in using the multiple. Today, we will use this tool to determine whether PennantPark is highly rated. A solely quantitative valuation is quite one-sided, and the incorporation of increasing interest rates in an investment decision makes for a more well-rounded analysis. For now let’s tackle the firm's F-score.